You can probably recall about the time your son or daughter turned 18 the credit card companies all came knocking. By now, your son or daughter is probably being overwhelmed with offers, and choosing just the right card isn't all that simple. So, your child must always be mindful of a card's interest rate, annual fees, late charges, etc. You and your young adult should consider the following when choosing a credit card:
Types of Cards. You may decide to help your young adult obtain their first credit card. You can co-sign a card for them and enable them to build a credit history. After a period of time, assuming a good payment record has been achieved, the card issuer will then issue a card in their name only. Another option is a secured card - an amount equal to the credit limit is placed in a deposit account at the financial institution until a good payment record is achieved. Then the card can be changed over to an unsecured basis. Or, you can name them an authorized user on your credit card (this does not help them build a credit history of their own like the other two options).
Credit unions almost always charge lower rates and have fewer fees than the major banks. Click here to find a credit union near you.
Playing The Percentage. The APR measures the cost of credit on an annual basis and may be the easiest way to compare costs among credit cards. Usually, the lower the APR, the less they will be charged for credit.
Annual Fees. Some credit cards charge annual fees, regardless of how much or little the card is used. If your young adult intends to pay off their credit card bill in full each month, they won't have to pay monthly finance charges–so cards with low or no annual fees will be more important than low APR.
Paying With Grace. A "grace period" allows your young adult to avoid finance charges if they pay the balance due before the due date. Some cards have no grace period and begin imposing charges on the day of the transaction. A grace period can be anywhere from 21 to 30 days.
Transaction Fees. Many credit card companies assess fees when cards are used in certain ways. Transaction fees are common for cash advances and wire transfers, and some cards even charge for purchasing theater tickets over the phone, or buying lottery tickets, etc.
Never Ever Be Late. If your young adult makes a late payment, most card issuers will charge a fee --, the higher the balance, the higher the fee. Since these fees are high, there are several strategies you can suggest: automatic bill payment, an alert can be sent to their cell phone, or they can sign-up to receive the bill via email. Click here to find a credit union near you where you can learn more about these options.
Knowing The Limits. Counsel them to always pay attention to their balance–fees for charging over their limit typically range from $15 - $40. If they must charge past their current limit, they should call the card issuer and request a higher limit.
Not For Everyone. Remember to inform your young adult that not everyone qualifies for every card, even if they received a "preapproved" offer in the mail. Those preapproved offers are still contingent on them meeting the creditor's qualifications.
When you have the time, check out these great resources:
Please Send Money. A Financial Survival Guide for Young Adults on Their Own.
The Money Book for the Young, Fabulous & Broke
